Localized Tech News: Bruised and battered techs in your area?
Somewhat yes in metro D.C. area ;-(.
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>>>Bruised and Battered
By Jerry Knight and Rob Garretson
Washington Post Staff Writers
Monday , June 12, 2000 ; F16
Call it revenge of the "old economy."
Despite some recent upticks in high-tech stocks in the region, most of the area's hottest companies of recent years remain down for the count since the bubble on the Nasdaq burst last March 27. At the same time, banking, real estate and hospitality companies in the region have enjoyed some of the strongest run-ups in their stocks in the last three months.
This makes it hard not to conclude March was indeed a true bubble popping for many of the area's companies. Anyone who had anxiety attacks in early March about not getting rich while "everyone" else was is probably better off.
Biotechs, especially the area's genomics companies, have had the sharpest rebound in the last few weeks, but none of them is anywhere near their bubble highs.
Last year's hot dot-coms remain among the near-dead. CareerBuilder Inc., Value America Inc., VarsityBooks.com Inc., Musicmaker.com Inc. and Crosswalk.com Inc. appear to be almost forgotten. None trades for more than $3 a share.
And finally, Internet-access providers, in almost any form, are way out of favor. OneMain.com Inc. last week agreed to a deal to sell to Earthlink Inc. for about $12 a share. It went public a year ago at $22 a share. Enough said.
The biggest winner, US Airways Group Inc., is up because of its merger deal with UAL Corp., the parent of United Airlines. Other than that, the company with the biggest gain in the last three months is Smithfield Foods Inc., the Virginia pork company that has become pig king of the United States. The reason: Wholesale pork prices are up 36 percent this year.
Price increases and profit margins moving a company's stock price. Imagine that.
"Old Tech" Strikes Back
Among the handful of stocks that are trading at or near their highs for the year, the most lucrative rebounds for shareholders have been generated by a pair of the region's premier blue-chip industrial companies, Lockheed Martin Corp. and General Dynamics Corp.
The market capitalization of each of the companies today is $3 billion more than it was when their stocks hit bottom in March. Lockheed Martin's low was $16.62 1/2 a share; it's now $25.31 1/4. General Dynamics closed Friday at $55.18 3/4 a share, up from a low of $37.
Both were high-tech long before the term was invented, but since they are primarily defense contractors their stocks don't march to the beat of tech-stock traders. Just the opposite, in fact. When the high-tech bubble was fully inflated in early March, the shares of Lockheed Martin and General Dynamics were at their nadir. They were the kind of "old tech" stocks that investors were dumping to buy "new tech."
The recovery of Lockheed Martin reflects not only the turnaround in the tastes of investors but also turnarounds for some key businesses. The company has won an Air Force contract for more C-130J transport planes, a contract to improve a rocket and approval from Congress to buy Comsat Corp. It also has a new president and improved credibility on Wall Street thanks to a new chief financial officer who came on board last year.
The only regional stock that has marched steadily upward this year--bubble or no--is Trex Co., the Winchester, Va., company that makes maintenance-free decking materials from recycled plastic bags and waste-wood chips.
Demand for Trex decking, which sells for as much as cedar or other premium woods, is so great that the company can't make the product fast enough. Trex opened a plant in Nevada earlier this year and last month announced that it was more than doubling capacity at its Winchester plant.
Trex went public at $10 a share in April 1999. The stock rose to $26.75 at the end of last year and closed Friday at $43.93 3/4 a share, up 64 percent for the year and 88 percent over 12 months.
Follow the Bouncing Genome
The biggest bounce off the bottom has come in the genomics stocks. Shares of Human Genome Sciences Inc. of Rockville closed Friday at $139.56 1/4 a share, up 147 percent in the last 12 days. At $108 a share Friday, the tracking stock of Rockville's Celera Genomics Group (a unit of PE Corp. of Norwalk, Conn.) is up 110 percent since May 25. Shares of Gene Logic Inc. of Gaithersburg, now $36.43 3/4 a share, are only a couple of percentage points short of doubling since their low point in May.
Genomics stocks are volatile even by the standards of biotech issues, which match the radical swings of Internet shares, said Gaithersburg investment manager Steven Newby, who in March launched GenomicsFund.com Inc., the nation's first genetics industry mutual fund.
"My fund normally is the biggest percentage winner or loser of the day," Newby said Friday when the fund, which trades under the symbol Genex, was having a big up day. The fund owns stakes in all three of the Montgomery County genetics companies. Celera is one of the fund's biggest holdings and Newby said he has been buying Gene Logic since attending that company's annual meeting last week.
Paralleling the rebound of the Nasdaq Stock Market, GenomicsFund.com has jumped to more than $9.61 a share since March 28 from $5.77. After that rebound, however, it remains short by a few cents of its March 1 $10 launching price.
That's a modest loss compared with the three big local genomics stocks, which had a range of prices over the last few months that showed the volatility of the industry. Gene Logic stock has traded as high as $144 a share and as low as $12 since last December. Celera has swung from $247 a share to less than $35 in the same period. Human Genome holds the roller-coster record: In seven weeks it plunged to slightly more than $55 a share from $225; it now is trading at $139.65 1/4 a share.
"This is definitely an area where you will continue to have volatility," Newby said. He cautions investors against trying to time the market by picking low points. "It's better to scale in over a period of months," following a strategy called cost averaging.
Newby said genomics stocks now are running up in anticipation of the announcement, which could come as early as this week, that Celera has completed the job of untangling the human genetic code.
Some scientists think the proclamation of success will have more symbolic than scientific significance because there are still some holes in the "completed" gene sequence. Nonetheless, the expected victory celebration is driving up the stocks.
Newby said he expects some traders to cash out for quick profits after Celera hits the spotlight, which could send the sector skidding.
Other biotech stocks have made more modest recoveries. Since most of them didn't fall as far as the genome issues, they generally are closer to their recent highs and many are up this year.
The other unlikely comeback is MicroStrategy Inc., the company the stock market had loved to hate since it began, concurrent with the Nasdaq's collapse, to disclose that it had overstated results for several years. The stock has more than doubled in the last week to close Friday at $62.25 a share, on speculation that the company could be near a financing deal that could give it expansion capital. The close Friday, however, is still well off its 52-week high of $333 a share.
Low-Overhead Stocks
Among the local stocks that have come through the recent technology sell-off in relatively good shape are companies building the "infrastructure" of the new economy, especially those that provide software and services that don't require large outlays for capital equipment.
Web design firm Proxicom Inc.; Aether Systems Inc., a developer of wireless data software and services; WebMethods Inc., which develops software that lets businesses exchange information with suppliers and customers across the Internet; and Ciena Corp., a maker of fiber-optic networking equipment, have all seen their share prices bounce back from the sharp declines in April and May.
Reston-based Proxicom closed Friday at $45.68 3/4 a share, more than doubling from its low of $21.50 on April 17. Though its share price remains down 24 percent year to date, the average stock in its sector is off 50 percent for the year, according to Daren Cohen, an equities analyst at Friedman, Billings, Ramsey Group Inc. in Arlington. Proxicom, which provides Internet consulting and builds Web sites for large companies such as WorldCom Inc., Exxon Mobil Corp. and America Online Inc., has been the beneficiary of the market's "flight to quality," he said.
Companies such as Proxicom that sell services that don't require hefty capital spending have an easier road to profitability than some other infrastructure companies, such as telecommunications carriers and Internet service providers that must spend millions of dollars on network build-out before they can generate revenue, much less profits.
"Services businesses can be profitable from Day One," Cohen said.
Skittish investors see Proxicom as a quality stock not just because it's profitable--it reported net income of $2.7 million for the first quarter--but also because it has a relatively low-risk clientele. Only 6 percent of Proxicom's customers were dot-com companies last quarter, Cohen said.
Though neither Aether Systems nor WebMethods is profitable, both software developers fall into the category of companies that don't have pressing capital needs and aren't shaken by the recent roll-up of capital markets, analysts said.
Aether Systems raised $1.4 billion in a March secondary offering, shortly before the technology sell-off helped squeeze capital markets dry, which should fund its growth and acquisition plans for the foreseeable future, analysts said. WebMethods raised more than $165 million in its February initial public offering, rocketing to $212 a share from $35 in its first day of trading.
The only other stock still where it was in March is Treev Inc., a $31 million-a-year Herndon firm that owes its stability to being largely ignored by investors. Hoping to raise its profile, Treev describes itself as a specialist in "e-business content management solutions," which sounds sexier than what used to be called "document management."
The stock is not followed by any analysts, but it's been a solid performer. A year ago it was in the $3 range. It came close to $7.50 a share in March, hasn't fallen below $5 since then and closed Friday at $6.75.
Weigh the Dot-Com Future
Many of these stocks refuse to rebound because frustrated investors who have held on to them are finally giving up. That's what Ingrid Hendershot, an investment advisor in Bristow, Va., finally did with her shares of RWD Technologies Inc., whose stock hit $10.50 a share in January, but has slipped steadily since.
"With sales dropping in the first quarter and net income off sharply, management doesn't expect business to turn around until the end of this year at the earliest," Hendershot said in her June portfolio review issued last week. "With uncertainty about future business, I've decided to sell RWD Technologies and bury the loss."
Burial may not be in order yet, but the death of the dot-com commerce fad is painfully apparent in the stocks of five companies that hoped to be leaders in the online business revolution--Value America Inc. of Charlottesville, Va., Musicmaker.com Inc. of Reston, CareerBuilder Inc. of Reston, Crosswalk.com Inc. of Chantilly and VarsityBooks.com Inc. of Washington.
It's not just that the stocks have fallen and can't get up, it's that they've landed around $2 a share--so low that most professional investors won't stoop to pick them up.
VarsityBooks.com found the college text market too crowded. Musicmaker.com has discovered that the online music business is not only crowded but cluttered by legal and technology issues that have kept anyone in it from making money.
CareerBuilder has run into the even more intense competition in the online employment business; it is the only one of the stocks to get any bounce from the Nasdaq rebound, creeping back to more than $3 a share.
Value America has discovered that electronic retailing can't be profitable if it depends on costly newspaper advertising.
Crosswalk.com may be the only one in the group that has a prayer, literally. The company, the trading symbol of which is AMEN, operates a Christian Web portal appealing to a wide range of religious beliefs. The prophets, however, have yet to produce profits.
Crosswalk.com shares closed Friday at $2.50 a share, half the IPO share price of $5, but initial investors have taken much bigger hits on the other four:
VarsityBooks went public in February at $10 a share and closed Friday at $1.62 1/2.
Value America went public in April 1999 at $23 a share and closed Friday at $1.65 5/8.
CareerBuilder went public in May 1999 at $13 a share and closed Friday at $3.09 3/8.
Musicmaker.com went public in July 1999 at $14 a share and closed Friday at $2.18 3/4.
Jerry Knight is The Post's local stock columnist and Rob Garretson covers local technology for The Post.
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